Answer the following questions: Question D A firm has a ROA of 10% and a Equity
ID: 2615529 • Letter: A
Question
Answer the following questions:
Question D
A firm has a ROA of 10% and a Equity Multiplier of 1.2. What is the firm's ROE?
Question E
If your firm has taxable income of $80,000 then how much will it pay in taxes? Use the updated 2018 statutory tax rate (provided in class) to calculate instead of the book's method.
Question F
Your firm has taxable income of $80,000. What is the firm's net income? Use the updated 2018 statutory tax rate (provided in class) to calculate instead of the book's method.
Question G
A firm has the following balance sheet as June 14, 2018. What is its current ratio?
Cash
$10,000
Inventory
$25,000
Prepaid Expenses
$10,000
Property, Plant, and Equipment
$100,000
Goodwill
$25,000
Total Assets
$170,000
Accounts Payable
$5,000
Accruals
$15,000
Current Portion of Long Term Bonds Payable
$25,000
Long Term Bonds Payable
$50,000
Common Stock, Par
$1,000
Common Stock, Paid in Capital
$50,000
Retained Earnings
$24,000
Total Liabilities and Equity
$170,000
Question H
Using the information below, calculate the 2018 Operating Cash Flow.
2018
2017
Cash
$ 10,000.00
$ 8,000.00
Inventory
$ 25,000.00
$ 5,000.00
Prepaid Expenses
$ 10,000.00
$ 5,000.00
Property, Plant, and Equipment
$ 100,000.00
$ 110,000.00
Goodwill
$ 25,000.00
$ 25,000.00
Total Assets
$ 170,000.00
$ 153,000.00
Accounts Payable
$ 5,000.00
$ 10,000.00
Accruals
$ 15,000.00
$ 8,500.00
Current Portion of Long Term Bonds Payable
$ 25,000.00
$ 7,000.00
Long Term Bonds Payable
$ 50,000.00
$ 60,000.00
Common Stock, Par
$ 1,000.00
$ 1,000.00
Common Stock, Paid in Capital
$ 50,000.00
$ 50,000.00
Retained Earnings
$ 24,000.00
$ 16,500.00
Total Liabilities and Equity
$ 170,000.00
$ 153,000.00
Sales
$ 100,000.00
$ 90,000.00
COGS
$ 25,000.00
$ 20,000.00
Gross Profit
$ 75,000.00
$ 70,000.00
Depreciation
$ 20,000.00
$ 18,000.00
EBIT
$ 55,000.00
$ 52,000.00
Interest
$ 5,000.00
$ 10,000.00
EBT
$ 60,000.00
$ 42,000.00
Taxes
$ 12,600.00
$ 8,820.00
NI
$ 47,400.00
$ 33,180.00
Question I
A firm's ROE has increased from 2017 to 2018. Using the information below, identify the ROE component that is responsible for the increase.
2018
2017
Cash
$ 10,000.00
$ 8,000.00
Inventory
$ 25,000.00
$ 5,000.00
Prepaid Expenses
$ 10,000.00
$ 5,000.00
Property, Plant, and Equipment
$ 100,000.00
$ 110,000.00
Goodwill
$ 25,000.00
$ 25,000.00
Total Assets
$ 170,000.00
$ 153,000.00
Accounts Payable
$ 5,000.00
$ 10,000.00
Accruals
$ 15,000.00
$ 8,500.00
Current Portion of Long Term Bonds Payable
$ 25,000.00
$ 7,000.00
Long Term Bonds Payable
$ 50,000.00
$ 60,000.00
Common Stock, Par
$ 1,000.00
$ 1,000.00
Common Stock, Paid in Capital
$ 50,000.00
$ 50,000.00
Retained Earnings
$ 24,000.00
$ 16,500.00
Total Liabilities and Equity
$ 170,000.00
$ 153,000.00
Sales
$ 100,000.00
$ 90,000.00
COGS
$ 25,000.00
$ 20,000.00
Gross Profit
$ 75,000.00
$ 70,000.00
Depreciation
$ 20,000.00
$ 18,000.00
EBIT
$ 55,000.00
$ 52,000.00
Interest
$ 5,000.00
$ 10,000.00
EBT
$ 60,000.00
$ 42,000.00
Taxes
$ 12,600.00
$ 8,820.00
NI
$ 47,400.00
$ 33,180.00
Question J
A firm has a ROA of 10% and a debt ratio of 75%. The firm has sales of $50,000 and net income of $10,000. How much equity does the firm have?
Cash
$10,000
Inventory
$25,000
Prepaid Expenses
$10,000
Property, Plant, and Equipment
$100,000
Goodwill
$25,000
Total Assets
$170,000
Accounts Payable
$5,000
Accruals
$15,000
Current Portion of Long Term Bonds Payable
$25,000
Long Term Bonds Payable
$50,000
Common Stock, Par
$1,000
Common Stock, Paid in Capital
$50,000
Retained Earnings
$24,000
Total Liabilities and Equity
$170,000
Explanation / Answer
SOLUTION D ROA = 10.00% ROA= NET INCOME / TOTAL ASSETS EQUITY MULTIPLIER = 1.2 EQUITY MULTIPLIER = TOTAL ASSETS / STOCKHOLDER'S EQUITY ROE=NET INCOME/ SHAREHOLDER'S EQUITY ROE=ROA*EQUITY MULTIPLIER ROE= 10%*1.2 ROE= 0.12 SOLUTION E TAXABLE INCOME= $80000 2018 statutory tax rate in USA 21.00% taxes= $16800 (21%*$80000) SOLUTION F TAXABLE INCOME= $80000 2018 statutory tax rate in USA 21.00% taxes= $16800 (21%*$80000) NET INCOME= 80000-16800 NET INCOME= $63200 OR TAXABLE INCOME= $80000 2018 statutory tax rate in USA 21.00% NET INCOME=TAXABLE INCOME*(1-TAX RATE) NET INCOME= 80000*(1-0.21) NET INCOME= $63200 SOLUTION G CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES CURRENT RATIO= $(10000+25000+10000)/$(5000+15000+25000) CURRENT RATIO= $45000/$45000 CURRENT RATIO= 1 times SOLUTION J ROA = NET INCOME / TOTAL ASSETS ROA = 10.00% NET INCOME = $10000 10%= 10000/ TOTAL ASSETS TOTAL ASSETS = $100000 DEBT RATIO = 75.00% EQUITY= 25.00% TOTAL ASSETS= TOTAL DEBT + TOTAL EQUITY TOTAL EQUITY = 25% * $100000 TOTAL EQUITY = $25000
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